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Comment by papercrane | Hacker News Reader

I'm guessing regulatory frameworks and a more competitive market in the US.

It's surreal to me the rates you can get locked in for 25 years in the US. Seems like the lender is taking a lot of risk there. When I first got my mortgage in Canada RBC offered me something like ~2% fixed on a 5 year term or ~8% fixed for a 25 year term. I can't imagine what their 25 year term rate is right now.

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There's actually minimal risk to the bank; 30-year fixed mortgages are guaranteed by Fannie and Freddie, who are guaranteed by the US government. If a borrower defaults, the US government makes the bank whole again. Banks do pay for the privilege, but it's pretty much always worth it to them.

What are you referring to by banks paying for the privilege? Like an fee they have to pay to be able to offload into Fannie? Or compliance costs? Or something else?

In the US the banks write the loans and offload them to Fannie and Freddie. It’s essentially a government back stop.

It's even surrealer to me that my mother got a 30 year mortgage. She's 80. While I think she has an outside chance of living till 110 - she has really good genetics - I doubt the bank knows this... I'm not exactly sure what the plan is (though she is good for the payments so long as she lives).

When you die, your estate still owes the money to the bank. The bank is thinking when she passes the estate will sell the house, or she'll end up needing a retirement home and sell. Worst case if she's insolvent they'll take the house, but with a large enough down payment this won't cause a loss for the bank.

Nobody thinks an 80yo will live another 30 years btw. Queen Elizabeth is 96 but her chances of writing herself a letter are actually not even half, since annual attrition at that age is something like 20 or 30 percent. Sorry to be a downer, I don't mean to be cynical about your mom, just looking at statistics.

No worries, you don't seem to be appreciably more cynical about my mom than I am. I did say it's only an outside chance she lives to 110. If I had to bet on it, I'd bet against.

The bank is taking a risk though, even if they did get recover with the estate, that's got to be a pain in the ass. I wonder at what point the administrative cost of getting that house resold doesn't make sense.

I suspect they get a probate lawyer to just dump it off cheaply to a lucky buyer. If the equity in the house is over 20% or so it's unlikely it would sit long on the market, for instance you give a 10% discount and someone will happily get that done fast.

Most 30 year mortgages are paid off within 10 years; often using the proceeds of selling the house in question.

The bank's plan is that they will sell the mortgage before the paint drys; then they don't care what happens. Regardless, the expectation is that your mother will continue making payments until either she or her estate sell the house, at which point the full balance of the loan will be repayed without any early payment penalty.

It's 100% regulatory framework. It's effectively illegal in Canada to offer fixed-rate mortgages with terms of over 5 years.

25? No one does 25. You’re locked in for 30.

You can only do 30 years in Canada if you put 20% down. The agency that underwrite default insurance will only insure up-to 25 year mortgages.

25 is the standard in Canada.

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